Rethinking SMEs & Start-Ups: Why the UK Should Talk About Core Businesses

When “SME” Stops Being Useful

For decades, the term SME has dominated the language of UK business, policy, and procurement. It appears everywhere, in government strategies, economic announcements, industry plans and procurement rules. Yet its usefulness has diminished. The term now groups together almost the entire private-sector economy into a single category that sounds small, marginal, and less capable than large corporate giants. In reality, SMEs are the UK business landscape. By calling them “small” and “medium,” we inadvertently diminish their perceived capability and importance. A new, more accurate language is needed.

Understanding the SME Definition — And Why It Creates Confusion

Under the UK government standard, an SME is any business with fewer than 250 employees and either an annual turnover under £50 million or a balance sheet total under £43 million. This sweeps together micro, small, and medium-sized companies into a single bureaucratic term. But the scale of this group shows why the label is increasingly unhelpful.

There are around 5.5 million private-sector businesses in the UK. Approximately 99.9% of them fall within the SME definition. They employ more than half the UK’s private-sector workforce, around 60%, and they generate more than half of private-sector turnover. They operate in every region and every supply chain.

Yet despite this dominance, the term “SME” functions as a linguistic straightjacket. It makes these companies sound small, fragile, or somehow unprepared for major responsibilities. It subtly suggests they are less trustworthy, less dependable, or less capable than big corporates. In procurement and risk-averse environments, this can become a barrier to opportunity.

Rethinking Start-Ups: Failure Rates, Innovation, and the Problem of Perception

It is true that a significant proportion of start-ups do not survive their first three years, around 60%, according to long-standing business demography data, but this statistic is often misinterpreted. High turnover at the start-up stage is not evidence of widespread fragility or incompetence; it is an inherent feature of innovation ecosystems. Start-ups exist to test ideas quickly and cheaply, to explore technical or market uncertainty, and to act as experimental vehicles for founders. Many are never intended to mature into long-term operating businesses, while others close because they pivot, merge, transition into consultancy, or evolve into new ventures. Failure at this stage is not a judgment on capability but a reflection of the volume of experimentation in a healthy, entrepreneurial economy.

The real issue is that the UK tends to treat “start-ups” and “SMEs” as interchangeable, folding them into the same category despite their entirely different purposes. As a result, mature companies with ten or twenty years of trading history are framed as inherently risky simply because they fall under the SME definition, while early-stage innovators are incorrectly viewed through the lens of conventional small-business risk. This conflation distorts procurement decisions and fuels the perception that smaller firms are fragile, when in reality most “SMEs” are stable, long-established Core Businesses with proven commercial resilience. Start-up failure rates should not shape how we view the wider small-business economy.

By changing the terminology, we can make this distinction clear. Labelling most firms as Core Businesses allows start-ups to be understood as a separate innovation stage rather than a synonym for “small” or “young.” Early-stage innovators can be recognised for their experimental role, while new non-innovation micro-businesses, such as tradespeople or local service providers, need not be labelled as start-ups at all. This reframing removes the stigma associated with start-up churn and prevents the failure rates of a minority of experimental ventures from unfairly colouring the perception of the mainstream business economy.

Why the Term “SME” Undermines Trust in UK Businesses

Because words influence behaviour, especially where risk and compliance dominate, the “small/medium” framing affects how businesses are perceived. Procurement officers, policymakers, and regulators often unconsciously equate “SME” with risk. Mature firms with decades of experience and strong financials are treated as if they are start-ups. This is not simply a misclassification, it is a misconception that distorts delivery decisions and suppresses competition.

By calling nearly every company in the UK “small,” we create a psychological and bureaucratic category that feels inherently less capable. This shapes procurement outcomes, investment decisions, and public perceptions.

Introducing “Core Businesses”: A More Honest Language

If 99% of British businesses fall into the SME definition, these companies are not small, they are core. The idea of Core Businesses is not a marketing flourish but an acknowledgment of reality. It restores neutrality where “small” and “medium” carry implied judgement. It positions these firms as standard, capable suppliers rather than marginal actors. It invites buyers and policymakers to treat them as dependable, established businesses, because that is what they are.

Referring to them as Core Businesses strengthens clarity, credibility, and confidence. It better reflects economic reality and allows more meaningful distinctions between mature firms and genuinely early-stage ventures.

The Problem of Treating Start-Ups and Mature Companies as the Same

One of the most damaging effects of the SME label is that it compresses completely different types of businesses into a single category. A 150-person engineering company exporting precision systems globally is an SME. So is a three-person start-up incorporated last week. Conflating these groups serves neither well. Mature companies are treated as if they are fragile newcomers, and early-stage firms are judged by standards designed for established businesses.

This muddled language makes it difficult for policymakers, investors, and buyers to design interventions that truly match the needs of each group. It also reinforces the false idea that SMEs are defined by vulnerability rather than capability.

A Better Framework for Start-Ups: Early-Stage Innovators

Not all start-ups fit the same mould, and they should not all be described the same way. But one category clearly does need its own identity: innovation-driven start-ups. These are the companies developing new technologies, new products, new business models, and new intellectual property. Their value lies in experimentation, fresh ideas, and potential for high growth.

Calling these companies early-stage innovators reframes them not as fragile or untested, but as purposeful contributors to the economy. This terminology recognises their distinctive role, experimenting at the frontier, without suggesting they are inferior or incapable. It gives them a clear identity separate from mature core businesses.

But What About Non-Innovator Start-Ups? Not Every New Business Is a Silicon Valley Venture

It is important to acknowledge that not all start-ups are innovation-led. A one-person cleaning business, a new gardener, a freelance accountant, a self-employed decorator, a home-care provider or a mobile mechanic might be a new business, but they are not early-stage innovators in the technological or market-creation sense.

These businesses are essential parts of the economy, but they are not involved in R&D, frontier technologies or experimental business models. They also should not be folded into a term that implies they are.

The simplest and most respectful language for these companies is to call them new businesses or newly established companies. These terms avoid any suggestion of fragility while acknowledging their early stage. They are simply new entrants to the core-business ecosystem, not a special or marginal category. They may grow, they may remain sole traders; both paths are valid, and neither requires the “SME” label to feel legitimate.

This creates a clean taxonomy:

Core Businesses for the mainstream business base

Early-Stage Innovators for technology or R&D-driven start-ups

New Businesses for early-stage companies that are not innovation-led

This is far clearer and avoids the SME trap altogether.

Innovation Is Not the Exclusive Domain of Start-Ups

One of the great misconceptions of UK business policy is that start-ups are where innovation happens, while established firms simply execute. This is simply untrue. Many core businesses are highly innovative. They invest in R&D, develop new products, adopt new technologies, and solve complex problems. They often have the resources, customer base, and stability to innovate more reliably than newly founded ventures.

By freeing mature firms from the SME label and giving start-ups more accurate categories, we can recognise innovation as a behaviour, not a birthright. Established companies innovate because they have the depth to turn ideas into delivery. Early-stage innovators experiment because they are free to explore new ground. Both roles matter.

Conclusion: A New Language for a Modern Economy

The SME label has become too broad, too vague, and too diminishing to be useful. It groups together 99% of British businesses into a category that sounds marginal and incapable, when the truth is the opposite. By using clearer language — core businesses, early-stage innovators, and new businesses — we can speak more honestly about the UK economy. This reframing strengthens credibility, improves procurement fairness, clarifies policy design, and recognises innovation wherever it happens.

Nearly every company in the UK is an SME. That makes the term meaningless. It is time to call these firms what they are: core businesses that make up the backbone of our economy. And it is time to call start-ups what they truly are: either early-stage innovators building the future, or new businesses establishing themselves in the marketplace.

A clearer language leads to clearer policies, better procurement, stronger trust, and a more confident understanding of the economy Britain actually has.